Wed, Jan 18, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Private Equity Strategies

Data Snapshot: Private Equity and Pension Funds Go Steady

Monday, April 29, 2013

By: Bailey McCann, Private Equity Strategies

In our last issue, we discussed the potential impact of institutional divestment around hot button issues like guns and climate change. In that piece, data showed that even if institutions like public pension funds are seeing returns from controversial investments, stigma around those investments and/or pending legislation, may in of itself prompt divestment even without a public outcry.

Now, the Private Equity Growth Capital Council (PEGCC), has released a new whitepaper detailing just how intertwined public pensions are with private equity and what that will mean for the industry. The report highlights the significant amount of capital pension funds commit to private equity and the financial gains they receive from the outperformance of these investments.

Despite losses from other investment strategies during the Great Recession, one bright spot for pensions is the superior performance of private equity funds, which helped buoy overall pension returns. The PEGCC research found that the median public pension portfolio received 8.8% in returns from private equity, compared to 3.7% in public equity and 5.7% in total portfolio returns, annually over the past ten years.

Overall, 60% of the funding available in pension funds comes from returns on investment – setting up a high-pressure situation for the directors of those funds when investments fail to return. The long-term structure of private equity investments can provide a buffer from episodic market corrections, but lengthy recessions like 2008 can depress returns.

Private equity too relies on investments from pension funds. Data in the paper shows that investments from public pensions account for 43% of all invested capital in private equity. According to the PEGCC, pensions are "essential to the private equity industry, just as private equity’s superior returns are vital to the financial health of pension funds."

"Without private equity returns, public pension plans across the country would incur greater unfunded liability, possibly resulting in higher pension contributions by employees and a spike in taxes paid by local residents," Bailey concluded.

 
This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies


Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Southpoint Capital gains 3.8% in Q3, bringing year-to-date returns to 5.2%[more]

    From Valuewalk.com: Southpoint Capital Advisors, the $3 billion New York hedge fund founded by former employees of David Einhorn’s Greenlight Capital, added 3.8% net during the third quarter of 2016, bringing year-to-date returns to 5.2% and cumulative returns since inception (July 2004) of 237.4% a

  2. The Big Picture: The case for emerging market debt in 2017[more]

    Benedicte Gravrand, Opalesque Geneva: Emerging market (EM) assets outperformed in 2016 mainly because of stronger fundamentals and an improving international environment, with GDP picking up speed, leading to positive earnings revisions for the first time in five years,

  3. Short Selling - Long-short hedge funds are ditching the shorts to focus on longs[more]

    From Bloomberg.com: What happens when you take the "short" out of a long-short trading strategy? Some hedge funds are about to find out. Equity long-short fund managers, the biggest category in hedge funds, hold the fewest bearish stock bets on record, data compiled by Credit Suisse Group AG s

  4. SWFs - China sovereign wealth fund CIC plans more U.S. investments[more]

    From Reuters.com: China Investment Corporation (CIC), the country's sovereign wealth fund, is looking to raise alternative investments in the United States due to low returns in public markets, its chairman said on Monday. CIC will boost its investments in private equity and hedge funds as wel

  5. Some hedge funds strong start in 2017 nice contrast to 2016[more]

    With the 2016 HSBC Hedge Weekly performance rankings in the books - a year in which the same leader-board entries pretty much dominated unchallenged throughout the year - comes a new leader board that is a hard-scrabble mix of hedge fund styles and categories. What is clear after but a few short wee